A large cost-of-living adjustment may push more retirees into taxable Social Security income brackets next year due to fixed IRS thresholds.
Retirees could face higher federal tax bills on Social Security benefits in 2027 as a significant cost-of-living adjustment (COLA) takes effect. The IRS thresholds for taxing benefits remain unchanged, meaning more income will be subject to taxation despite inflation adjustments.
The 2027 COLA is projected to be among the largest in 36 years, but the taxable income thresholds have not been indexed to inflation. This mismatch could result in a larger portion of benefits being taxed, increasing financial strain on retirees already managing rising costs.
While the exact COLA increase will be announced in October, the lack of adjustment in tax thresholds may lead to unexpected tax liabilities for millions of beneficiaries.